3 Factors That May Propel Costco Wholesale Corporation (COST) to New Highs

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Costco Wholesale Corporation (NASDAQ:COST) seems to be unfazed by tough retail scenario. Major chains are grappling with sluggish store and mall traffic as consumers choose to shop online from the comfort of their homes.

But Costco looks much more disciplined in its approach to adapt to the changing retail landscape.

Shares of this membership warehouse retailer have surged 18.4% in the past six months, and has comfortably outperformed the Zacks categorized Retail-Discount & Variety industry’s decline of 1.9%. This Zacks Rank #3 (Hold) stock is currently trading at its 52-week high of $183.18, and we see no hindrances that can restrain it from attaining new highs.

Further, the stock’s long-term earnings per share growth rate of 9.7% and a VGM Score of “B” portray its inherent strength.

Costco Is a Dominant Warehouse Retailer

We believe that Costco continues to be one of the dominant retail wholesalers based on the breadth and quality of merchandise offered. The company’s strategy to sell products at heavily discounted prices has helped it to remain on a growth track as cash-strapped customers continue to reckon Costco as a viable option for low-cost necessities. A differentiated product range enables Costco to provide an upscale shopping experience for its members, resulting in market share gains and higher sales per square foot.

Moreover, the company continues to maintain healthy membership renewal rate.

The company is also gradually expanding its eCommerce capabilities in the U.S., Canada, U.K., Mexico, Korea and Taiwan.

Costco Continues with Positive Comps Performance

Costco continued with positive comparable-store sales (comps) performance driven by improved store traffic and average transaction size. Comps for May increased 4.1%, following an increase of 3% in April, 6% in March, 4% in February and 7% in January. Notably, net sales increased 7%, 5% 9%, 8% and 9% in May, April, March, February and January, respectively.

The stock further got impetus following the company’s upbeat performance in the third quarter of fiscal 2017. After missing earnings in the first and second quarters, Costco made a sharp come back with earnings beat in the third quarter.

Total revenue also outperformed the estimate breaking its long streak of missing the same in the preceding nine quarters.

Costco Continues to Concentrate on Enhancing Global Its Footprint

We are also encouraged by the company’s expansion strategy. Costco has one of the highest square footage growth in the industry, and remains committed to opening new clubs in the domestic and international markets. The company opened 23 and 29 net new outlets in fiscal 2015 and 2016, respectively, and plans to open nearly 26 net new outlets in fiscal 2017, of which approximately 13 are expected to be opened in the U.S. with the remaining in international markets. In our view, the company’s diversification strategy is a natural hedge against risks that may arise in specific markets.

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